Day 1
Principles of corporate finance & valuation
Introduction to corporate finance
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The investment setting
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Measuring risk and return
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The shareholder value concept
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The financial statement analysis & ratios
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Review of basic financial statements
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Computation of ratios
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Comparative analysis of ratios
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Dupont analysis
Exercise: Balance sheets tell a story. Participants will be given common size balance sheets for six different operating companies from FY2004. Using only this information, they will be asked to identify each operating company from a list of the six provided.
Capital market line: the menu of finance
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Determining the optimal capital structure
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Alternative financing alternatives
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WACC issues
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Recent trends in corporate financing
Master case: Capital structure issues. Prior to the seminar, participants received two company briefing packages. Throughout the week, groups will address various issues raised during the seminar. This "Master Case” will serve as the basis for ongoing evening discussion with each group making recommendations at the conclusion of the seminar. Here, groups will examine their company’s capital structure, then prepare and deliver a 5-minute presentation.
Asset pricing models
Estimating cash flows and growth rates
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Cash flows to equity and the firm
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The effect of inflation
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Historical growth rates
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Analysing analyst earnings forecasts
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Expected growth and fundamentals
Master case: Valuation. The group will be divided into teams to estimate free cash flows for the Master case company given various leverage constraints, working capital needs and desired discount rates. Participants will develop a model to compute the present value of equity and debt.
Day 2
Debt capital markets financing
Debt financing instruments
The ratings agency process
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Review of the concept
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Examine distinctions between agency ratings
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Discuss the bond rating process
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Review the ratios and formulas
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Analyse the standard financial adjustments
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Examine the effect of bond ratings on credit spreads
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Consider the implications of implied ratings
Exercise: Preparing a bond rating – Allied Domecq plc. Participants will be given corporate information for a public company seeking to raise additional capital. The company has asked the Bank to determine the maximum amount of debt they can raise to maintain various levels of investment grade pricing.
Debt capacity
High-yield debt
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Issuer and investor types
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Euro versus US market today
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Competing solutions
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Value of this transaction to the relationship managers
The syndicated loan market
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The syndicated loan process
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Types of loans and credit facilities
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Creating facilities to match client needs
Case study: Recent debt market transactions. Participants will examine corporate and market conditions prior to issuance of several recent capital markets issuances. Groups will be asked to predict the actual issuance type, size and approximate pricing based on the background information provided.
Master case: Debt instruments. Groups will assess debt instruments currently employed by Master case study company.
Day 3
Equity capital markets / Introduction to derivatives
Equity financing
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Types of equity offerings
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The issuer’s perspective
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International considerations including ADRs
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The capital structure decision: When to issue equity?
Case Study: IPO financing. Delegates will consider a recent IPO to examine issuer and investor motivations, risks, pricing and other relevant topics.
Equity-linked securities
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Pricing characteristics for the conversion feature
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Exchangeability feature
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Debt with equity warrants
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Investor market characteristics
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Current market examples
Case Study: Orange, plc. Participants will examine an exchangeable bond, examining:
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Pricing considerations
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Target investors
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Marketing role
- Possible arbitrage opportunities
Capital markets indicators
Define and discuss various market indicators that practitioners rely upon to make financing and investment decisions, including:
Case Study – Yield curve analysis Participants are given government and swap yield curves from four currencies: Euro, US Dollar, Yen and Sterling. Groups will discuss implications and answer the following:
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What do the yield curves tell us about current financing and investment conditions?
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What implications do the yield curves have for future interest rate movements?
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What capital markets possibilities do market conditions present for clients?
Master case: Capital financing risks & opportunities. Participants will examine the corporate strategy and relevant financial risks that this strategy implies for their respective Master Case companies. Groups will prepare a 5-minute presentation presenting their results.
Day 4
Financial risk management & derivatives
Master case: Capital financing risks & opportunities (continued) group presentations and feedback.
Corporate risk management overview
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Relating corporate financial strategy to financial risk management strategy
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Tactical and strategic exposures including translation and transaction risk
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Measuring corporate risk
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Understanding the risk management matrix
Master case: Risk management issues. Participants will discuss risk management issues relating to the Master Case company. Groups will prepare the Risk Management Matrix and present their analysis to the other participants.
Symmetric hedging instruments
Case Study: CART Driving 101: FRAs and IRS Participants will complete a series of exercises and discussion questions involving forward rate agreements and interest rate swaps.
Currency swaps
Asymmetric risk management: option-based hedging
Case Study – Mike’s Cigars: Hedging Interest Rate Risk. A client, Mike’s Cigars, is looking for advice on how to hedge an upcoming interest rate reset date. Each team will construct interest rate caps and collars to help Mike’s manage its financial risk.
Day 5
Topics in portfolio management
Statistical and theoretical approaches to investment management
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Commonly used statistical measures
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Diversification and the efficient frontier
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Risk vs. return trade-off
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Other applications of Modern
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Portfolio Theory (MPT)
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Essential asset pricing models
The asset allocation decision
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Steps in the portfolio management process
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Analysing risk and return objectives
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Influence of political and economic factors in determining optimal asset mix
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Strategic vs. tactical AA
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The cases for and against international diversification
Case study – Strategic asset allocation. Participants will be given background information for a variety of different investors and asked to design appropriate portfolio mixes.
Investor characteristics & qualities
Exercise – The Importance of Behavioural Finance Topics. Participants will examine how a series of behavioural investment biases affect optimal investment decisions as defined by MPT. Biases to be evaluated include: frame dependence, over–confidence, representativeness, and loss aversion.
Fixed income portfolio management
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Objectives and constraints
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Active vs. Passive strategies
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Using diversification to minimise risk
Asset pricing models revisited
Equity portfolio management
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Underlying drivers for use of equity
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Issuer/investor perspectives
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Equity style management
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Security selection approaches: topdown or bottom up
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Establishing relevant benchmarks
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Long-short vs. long-only strategies
Master case: Comparable companies modelling. Groups will develop a relative valuation of the “master case” company previously assigned and answer several questions including: – Is the company under / over / fairly valued? – How do the company’s debt and equity ratios compare to market competitors?